PINC Sector Report – Cable & Satellite Industry

India's C&S market on the cusp of high growth phase

The Indian Cable & Satellite(C&S) industry, the third largest in the world, with 136mn C&S homes is all set for a revolution as the long-expected 'digitisation' becomes a reality. Currently there are 41mn DTH homes and 6mn Digital cable homes (35% penetration in C&S homes). Going forward digital subscriber base is expected to rise from 47mn to 83mn by 2015, increasing at 21%CAGR (2012E-2015E). An industry of Rs270bn will no longer operate under obsolete analog distribution business post digitisation. The long standing local cable operator (LCO) 'under- reporting' issue will get resolved with the gradual roll out of digitisation as per the sunset clause. Aggressive marketing and promotional offers by DTH players adds to the growth factor of the industry.

Imminent Digitisation set to double digital subscriber base

C&S industry is set to expand to 166mn with 64mn DTH and 20mn digital cable gross subscribers by 2015E. Aggressive subscriber acquisitions by the well funded six DTH players have kept the digitisation momentum alive. Now with compulsory digitisation MSOs and LCOs are left with 'no choice' in the face of increasing threat from DTH. We believe with government-mandated digitisation, the well funded national MSOs and DTH players are all set to capture the opportunity.

Industry on the threshold of profitability

Currently the C&S industry is largely run under the outdated analog mode of distribution which has resulted in a highly fragmented value chain and allowed last mile operator to corner ~80% of the subscription revenue. With compulsory digitisation, economic retention will be the crucial driver in value creation. Curbing of revenue leakages will be the main growth factor for C&S industry to register 10% CAGR over 2012E-15E. High operating leverage business model will be the key driver for organised cable players and DTH operators in magnifying their operating margins. We see major players in DTH segment and organized MSOs to breakeven by 2013.

Key Risks - Unsuccessful implementation of digitisation (sunset clause).

Our recommendation

Structural change in cable distribution and DTH ramp up makes us positive on the Indian C&S Industry and we initiate coverage on the sector, with a 'BUY' recommendation on Hathway Cable (TP Rs151, +36%), Dish TV (TP Rs77, +26%) and Den Networks(TP Rs64, +33%).

Source : Equity Bulls

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